September 1, 2017 / 9:51 AM / a year ago

UPDATE 1-UK factories move up a gear, hinting at stronger growth - PMI

LONDON, Sept 1 (Reuters) - Britain’s factory activity grew a lot more strongly than expected in August as work flowed in from home and abroad, a survey showed on Friday, suggesting the economy might be picking up speed after a slow first half of 2017.

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) jumped to a four-month high of 56.9 from 55.3 in July, above all forecasts in a Reuters poll of economists.

Manufacturing accounts for only around 10 percent of the British economy but the government is hoping it will grow on the back of the fall in the value of sterling since last year’s Brexit vote, which makes British exports cheaper.

Rob Dobson, a director at IHS Markit, said the strong performance last month, after a good July, should help support overall growth in the third quarter.

That could “add fuel to hawkish (Bank of England) policymakers’ calls for higher interest rates,” he said.

The BoE’s rate-setters voted 6-2 against a rate hike in August with most policymakers expressing concern about the impact of last year’s Brexit vote on the economy which slowed sharply in the first six months of this year.

Sterling rose after the PMI survey was published.

However, the strength of Britain’s factories in August was less marked than elsewhere in Europe. Manufacturing in the euro zone had its best month in August since 2011.

Dobson said it looked likely that British manufacturing would keep up its growth in the near term because the pick-up happened across the sector and among small and large firms.

While there were some signs of shortages of workers and material, “at the moment, the survey data suggest that the manufacturing economy remains in good health despite Brexit uncertainty,” he said.

However, there has been a marked discrepancy in recent months between the PMI readings of the manufacturing sector and official data which has painted a weaker picture.

James Smith, an economist with ING bank, pointed out that the pound had lost about 20 percent of its value since November 2015, before the Brexit vote, but manufacturing output is only 2 percent higher.

“With overall economic momentum slowing and signs of domestically generated inflation proving hard to find, we think the first BoE rate hike is still some way off,” he said.

IHS Markit said manufacturing output growth in August hit a seven-month high and new orders rose at the fastest pace in three months.

Growth in exports eased off only slightly from a seven-year high in July, helped by stronger demand from key markets in Europe, the United States and elsewhere and by the fall in the value of the pound since the Brexit vote.

Additional reporting by Andy Bruce; Writing by William Schomberg; Editing by Hugh Lawson

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